Celltrion, Inc. and its subsidiaries

Consolidated financial statements for the years ended with independent auditors report

Table of contents Page Independent auditors report 1 Financial statements Consolidated statements of financial position 4 Consolidated statements of profit or loss 5 Consolidated statements of comprehensive income 6 Consolidated statements of changes in equity 7 Consolidated statements of cash flows 9 11

Independent auditors report The Board of Directors and Shareholders Celltrion, Inc. We have audited the accompanying consolidated financial statements of Celltrion, Inc. (the Company ) and its subsidiaries (collectively referred to as the Group ), which comprise the consolidated statement of financial position as at December 31, 2015 and the consolidated statement of profit or loss and the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Korean International Financial Reporting Standards (KIFRS), and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the Republic of Korea. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. A member firm of Ernst & Young Global Limited

Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at December 31, 2015 and its financial performance and cash flow for the year then ended in accordance with Korean International Financial Reporting Standards. Other matters The consolidated financial statements of the Group for the year ended December 31, 2014 were audited by Samil accounting firm who expressed an unqualified opinion on those consolidated financial statements on March 12, 2015. March 17, 2016 This audit report is effective as at March 17, 2016, the independent auditors report date. Accordingly, certain material subsequent events or circumstances may have occurred during the period from the date of the independent auditors report to the time this report is used. Such events and circumstances could significantly affect the accompanying consolidated financial statements and may result in modifications to this report. A member firm of Ernst & Young Global Limited

Consolidated financial statements for the years ended The accompanying consolidated financial statements, including all footnotes and disclosures, have been prepared by, and are the responsibility of, the Company. Kee, Woo Sung, CEO Kim, Hyoung Ki, CEO Celltrion, Inc. 3

Consolidated statements of financial position as at (Korean won in millions) Notes December 31, 2015 December 31, 2014 Assets Current assets Cash and cash equivalents 5,6,7 \ 149,926 \ 108,752 Short-term financial assets 5,6,8 6,001 9,746 Trade receivables 5,6,9,33,34 662,226 378,290 Other receivables 5,6,9,34 15,324 40,313 Inventories 10 233,766 223,617 Income tax refundable 9,903 24 Other current assets 14,34 19,691 32,294 Total current assets 1,096,837 793,036 Non-current assets Long-term financial assets 5,6,8 \ 14,698 \ 7,735 Long-term other receivables 5,6,9,34 9,236 12,930 Investments in associates 11 8,092 3,484 Property, plant and equipment 12 897,605 898,229 Intangible assets 13 697,774 601,558 Deferred tax asset 20 22,091 3,784 Other non-current assets 14 1,898 1,629 Total non-current assets 1,651,394 1,529,349 Total assets 2,748,231 2,322,385 Liabilities Current liabilities Short-term financial liabilities 5,6,16 \ 540,503 \ 404,084 Trade payables 5,6,15 5,144 4,390 Other payables 5,6,15,34 60,705 75,955 Income tax payable 42,743 5,827 Other current liabilities 18,19 16,656 3,681 Total current liabilities 665,751 493,937 Non-current liabilities Long-term financial liabilities 5,6,16 \ 270,909 \ 479,294 Long-term other payables 5,6,15,19 978 675 Other provisions 17 752 698 Total non-current liabilities 272,639 480,667 Total liabilities 938,390 974,604 Equity Equity attributable to owners of the parent Issued capital 1,21 \ 112,432 \ 103,570 Share premium 21 647,186 374,602 Retained earnings 22 994,025 845,040 Accumulated other comprehensive income 8,23 8,513 3,435 Other components of equity 23 (67,922) (79,253) Non-controlling interest 35 115,607 100,387 Total equity 1,809,841 1,347,781 Total liabilities and equity \ 2,748,231 \ 2,322,385 The accompanying notes are an integral part of the condensed consolidated financial statements. 4

Consolidated statements of profit or loss for the years ended (Korean won in millions, except per share amounts) Notes 2015 2014 Revenue 25,33,34 \ 603,413 \ 471,046 Cost of sales 25,29,34 (234,569) (129,908) Gross profit 368,844 341,138 Selling and administrative expenses 26,29,34 (109,890) (139,669) Operating profit 258,954 201,469 Other income 27,34 4,533 8,546 Other expenses 27 (69,408) (15,271) Finance income 28,34 9,541 11,259 Finance costs 28 (40,719) (56,625) Share of profit or loss in associates 11 209 (266) Profit before income tax 163,110 149,112 Income tax benefit (expense) 20 (4,828) (31,630) Profit for the year \ 158,282 \ 117,482 Attributable to: Equity holders of the Company \ 154,090 \ 112,676 Non-controlling interest \ 4,192 \ 4,805 Earnings per share Basic earnings per share 31 \ 1,409 \ 1,058 Diluted earnings per share 31 \ 1,403 \ 1,057 The accompanying notes are an integral part of the condensed consolidated financial statements. 5

Consolidated statements of comprehensive income for the years ended (Korean won in millions) Notes 2015 2014 Profit for the year \ 158,282 \ 117,482 Other comprehensive income 5,052 3,348 Other comprehensive income to be reclassified to profit or loss in subsequent periods: Gain (loss) on valuation of available-for-sale financial assets 8 3,815 (843) Share of other comprehensive income of associates - 31 Exchange differences on translation of foreign operations 2,162 3,964 Income tax effect relating to components of other comprehensive income (loss) 20 (925) 196 Total comprehensive income for the year, net of tax \ 163,334 \ 120,830 Attributable to: Equity holders of the Company \ 159,166 \ 116,018 Non-controlling interests \ 4,168 \ 4,812 The accompanying notes are an integral part of the condensed consolidated financial statements. 6

Consolidated statements of changes in equity for the years ended (Korean won in millions) Notes Issued capital Share premium Accumulated other comprehensive income Other components of equity Noncontolling interest Total As at January 1, 2014 \ 100,504 \ 370,966 \ 735,306 \ 94 \ (119,738) \ - \ 1,087,132 Comprehensive income Profit for the year - - 112,676 - - 4,806 117,482 Loss on valuation of available-for-sale financial assets 8 - - - (639) - - (639) Share of other comprehensive income of associates - - - 24 - - 24 Currency translation differences - - - 3,956-7 3,963 Total comprehensive income - - 112,676 3,341-4,813 120,830 Transactions with equity holders of the Company : Stock dividends 22 2,942 - (2,942) - - - - Exercise and forfeiture of stock options 24 124 3,636 - - (1,388) - 2,372 Recognition of stock options 24 - - - - 4,396 91 4,487 Acquisition of treasury stocks 23 - - - - (1,243) - (1,243) Disposal of treasury stocks 23 - - - - 55,759-55,759 Loss for disposal of treasury stocks - - - - (19,525) - (19,525) Recognition of consideration for conversion rights - - - - - 747 747 Changes in ownership of subsidiaries - - - - 2,486 (2,486) - Changes in consolidation - - - - - 97,222 97,222 Total transactions with equity holders of the Company 3,066 3,636 (2,942) - 40,485 95,574 139,819 As at December 31, 2014 \ 103,570 \ 374,602 \ 845,040 \ 3,435 \ (79,253) \ 100,387 \ 1,347,781 (Continued) Retained earnings 7

Issued Notes capital Share premium comprehensive income components of equity Celltrion, Inc. and its subsidiaries Consolidated statements of changes in equity for the years ended (cont'd) (Korean won in millions) Accumulated other Other Noncontolling interest Total As at January 1, 2015 \ 103,570 \ 374,602 \ 845,040 \ 3,435 \ (79,253) \ 100,387 \ 1,347,781 Comprehensive income Profit for the year - - 154,090 - - 4,192 158,282 Gain on valuation of available-for-sale financial assets 8 - - - 2,923 - (33) 2,890 Currency translation differences - - - 2,155-7 2,162 Total comprehensive income - - 154,090 5,078-4,166 163,334 Transactions with equity holders of the Company : Stock dividends 22 5,105 - (5,105) - - - - Exercise and forfeit of stock options 24 208 9,371 - - (2,641) 2,254 9,192 Recognition of stock options 24 - - - - 4,921 87 5,008 Conversion of convertible bonds 3,549 263,213 - - - 9,986 276,748 Issuance of exchangeable bonds 23 - - - - 8,474-8,474 Acquisition of treasury stock 23 - - - - (1,532) (38) (1,570) Recognition of consideration for conversion rights - - - - - 874 874 Changes in ownership of subsidiaries - - - - 2,109 (2,109) - Total transactions with equity holders of the Company 8,862 272,584 (5,105) - 11,331 11,054 298,726 As at December 31, 2015 \ 112,432 \ 647,186 \ 994,025 \ 8,513 \ (67,922) \ 115,607 \ 1,809,841 Retained earnings The accompanying notes are an integral part of the condensed consolidated financial statements. 8

Consolidated statements of cash flows for the years ended (cont'd) (Korean won in millions) Notes 2015 2014 Operating activities Cash generated from operations 32 \ 98,245 \ 173,423 Income tax paid (20,678) (28,264) Net cash flows from operating activities 77,567 145,159 Investing activities Cash inflow from investing activities Interest received 2,100 2,396 Dividend received 770 20 Decrease in short-term financial assets 9,725 17,321 Decrease in other receivables 43,021 9,389 Decrease in long-term financial assets 645 641 Decrease in long-term other receivables 1,407 3,705 Decrease in investments in associates 2,421 700 Acquisition of other grants 6,139 4,386 Proceeds from disposal of property, plant and equipment 28 195 Proceeds from disposal of intangible assets 714 - Cash inflow from business combination - 11,619 Cash outflow from investing activities Increase in short-term financial assets (5,608) (11,095) Increase in other receivables (30,004) (5,674) Increase in long-term financial assets (3,702) (796) Increase in long-term other receivables (2,422) (1,756) Acquisition of investments in associates (7,590) (2,000) Acquisition of property, plant and equipment (50,585) (31,472) Acquisition of intangible assets (133,997) (103,917) Net cash flows from investing activities \ (166,938) \ (106,338) (Continued) 9

Celltrion, Inc. and Subsidiaries Condensed consolidated statements of cash flows for the years ended (cont'd) (Korean won in millions) Notes 2015 2014 Financing activities Cash inflow from financing activities Increase in short-term financial liabilities \ 143,448 \ 142,489 Increase in long-term financial liabilities 241,000 107,400 Issuance of ordinary shares 9,201 2,377 Disposal of treasury stock - 30,000 Cash outflow from financing activities Interest paid (35,237) (36,575) Dividend paid (1) - Decrease in short-term financial liabilities (170,134) (241,476) Issuance costs of long-term financial liabilities (557) - Decrease in long-term financial liabilities (55,714) (14,271) Stock issuance costs (8) (20) Acquisition of treasury stock (1,571) (1,243) Net cash flows from financing activities 130,427 (11,319) Net increase in cash and cash equivalents 41,056 27,502 Net foreign exchange difference 118 496 Cash and cash equivalents as at January 1 108,752 80,754 Cash and cash equivalents as at December 31 \ 149,926 \ 108,752 The accompanying notes are an integral part of the condensed consolidated financial statements. 10

1. Corporate information General information about Celltrion, Inc. ( the Company ) and its subsidiaries (collectively referred to as the Group ) is as follows: The Company was incorporated on February 27, 1991, and listed its common stock on the Korea Stock Exchange (KOSDAQ) on July 19, 2005. The Company changed its name on August 19, 2008, from Orchem Co., Ltd. to Celltrion, Inc. after the merger with Celltrion, Inc., which was established on February 26, 2002. The primary business objective of the Company is to engage in development and production of various therapeutic proteins including oncology treatment drugs through the Company s bioengineering and mammalian cell-culture technology. The Company s head office is located in the Incheon Free Economic Zone. The Company s shareholders as at are as follows: December 31, 2015 December 31, 2014 Number of shares Equity interest Number of shares Equity interest Celltrion Holdings Co., Ltd. 21,825,630 19.41% 20,786,315 20.07% Celltrion GSC Co., Ltd. 2,421,392 2.15% 2,306,088 2.23% Ion Investment B.V. 16,188,297 14.40% 15,417,426 14.89% Others 70,509,709 62.71% 63,595,842 61.40% Treasury stock 1,486,635 1.33% 1,464,100 1.41% 112,431,663 100.00% 103,569,771 100.00% 1.1 Consolidated subsidiaries Consolidated subsidiaries as at are as follows: Subsidiary Celltrion Pharm, Inc. (*1) Celltrion Chemical Research Institute (*2) Celltrion Pharma USA, Inc. (*2) Equity interest December 31, 2015 December 31, 2014 Domicile Year-end Primary business activity 45.82% 48.19% Korea December Manufacturing and sales of medicine Research and development of 45.82% 48.19% Korea December new medicine and pharmaceutial raw material 45.82% 48.19% USA December Marketing in the U.S. and establishing distribution network Celltrion Don LLC 100.00% 100.00% Russia December Agriculture in Russia Celltrion Eurasia LLC 100.00% 100.00% Russia December Agriculture in Russia Celltrion Europe Limited 100.00% 100.00% United Kingdom December Bio-similar clinical trial (*1) Although the Company holds less than 50% equity interest, the subsidiary was consolidated due to the Company s stock warrants granting potential voting rights. (*2) The subsidiary is wholly owned by Celltrion Pharm, Inc. 11

1. Corporate information (cont d) 1.2 Changes in Scope for Consolidation Subsidiaries newly included in the consolidation for the year ended December 31, 2014 were as follows: Name Celltrion Pharm, Inc. Celltrion Chemical Research Institute Celltrion Pharma USA, Inc. Newly included/excluded in consolidation Newly included Newly included Newly included Reason Acquired control after exercising stock warrants with potential voting rights 1.3 Financial information of subsidiaries (before elimination of intercompany transactions) The summarized statements of financial position of subsidiaries as at, and the related condensed statements of profit or loss and other comprehensive income of subsidiaries for the years ended are as follows (Korean won in thousands): December 31, 2015 Subsidiary Assets Liabilities Equity Celltrion Pharm, Inc. \ 468,519,989 \ 232,253,566 \ 236,266,423 Celltrion Chemical Research Institute 4,904,291 1,356,851 3,547,440 Celltrion Pharma USA, Inc. 188,307-188,307 Celltrion Don LLC 4,324,252 13,565,008 (9,240,756) Celltrion Eurasia LLC 393-393 Celltrion Europe Limited 2-2 December 31, 2015 Subsidiary Revenue Profit (loss) Comprehensive income (loss) Celltrion Pharm, Inc. \ 72,578,429 \ 7,386,732 \ 7,328,024 Celltrion Chemical Research Institute 6,196,700 (569,725) (569,725) Celltrion Pharma USA, Inc. - (83,093) (69,025) Celltrion Don LLC 2,049,907 (4,403,460) (2,255,390) Celltrion Eurasia LLC - - - Celltrion Europe Limited - - - 12

1. Corporate information (cont d) 1.3 Financial information of subsidiaries (before elimination of intercompany transactions) (cont d) December 31, 2014 Subsidiary Assets Liabilities Equity Celltrion Pharm, Inc. \ 412,667,481 \ 198,848,533 \ 213,818,948 Celltrion Chemical Research Institute 5,006,598 889,432 4,117,166 Celltrion Pharma USA, Inc. 257,332-257,332 Celltrion Don LLC 4,687,019 11,657,468 (6,970,449) Celltrion Eurasia LLC 393-393 Celltrion Europe Limited 2-2 December 31, 2014 Subsidiary Revenue Profit (loss) Comprehensive income (loss) Celltrion Pharm, Inc. \ 64,708,354 \ 6,269,748 \ 6,269,748 Celltrion Chemical Research Institute 8,223,040 149,643 149,643 Celltrion Pharma USA, Inc. - (53,811) (43,640) Celltrion Don LLC 1,716,156 (8,470,278) (4,776,055) Celltrion Eurasia LLC - - - Celltrion Europe Limited - - - 2. Summary of significant accounting policies The significant accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. 2.1 Basis of preparation The Group maintains its accounting records in Korean won and prepares statutory financial statements in the Korean language in accordance with Korean International Financial Reporting Standards (KIFRS). The accompanying consolidated financial statements have been condensed, restructured and translated into English from the Korean language financial statements. Certain information attached to the Korean language financial statements, but not required for a fair presentation of the Group's financial position, financial performance or cash flows, is not presented in the accompanying consolidated financial statements. The consolidated financial statements of the Group have been prepared in accordance with KIFRS. These are the standards, subsequent amendments and related interpretations issued by the International Accounting Standards Board (IASB) that have been adopted by the Republic of Korea. 13

2. Summary of significant accounting policies (cont d) 2.1 Basis of preparation (cont d) The preparation of the consolidated financial statements requires the use of certain critical accounting estimates. It also requires management to exercise judgment in the process of applying the Group s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 3. 2.1.1 Changes in accounting policy and disclosures (1) New and amended standards adopted by the Group The Group newly applied the following amended and enacted standards for the reporting period beginning on January 1, 2015, and there is no material impact on the consolidated financial statements. - Amendment to KIFRS 1019, Defined Benefit Plans: Employee Contributions - Annual Improvements to KIFRS 2010-2012 Cycle - Annual Improvements to KIFRS 2011-2013 Cycle (2) New standards and interpretations not yet adopted The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Group s financial statements are disclosed below. KIFRS 1109 Financial Instruments The KASB issued the final version of KIFRS 1109 Financial Instruments that replaces KIFRS 1039 Financial Instruments: Recognition and Measurement and all previous versions. KIFRS 1109 brings together all three aspects of the accounting for financial instruments project: classification and measurement, impairment and hedge accounting. KIFRS 1109 is effective for annual periods beginning on or after January 1, 2018, with early application permitted. Except for hedge accounting, retrospective application is required but providing comparative information is not compulsory. For hedge accounting, the requirements are generally applied prospectively, with some limited exceptions. The Group plans to adopt the new standard on the required effective date. KIFRS 1115 Revenue from Contracts with Customers Under KIFRS 1115, revenue is recognized at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The new revenue standard will supersede all current revenue recognition requirements under KIFRS. Either a full retrospective application or a modified retrospective application is required for annual periods beginning on or after January 1, 2018. Early adoption is permitted. The Group plans to adopt the new standard on the required effective date using the full retrospective method. 14

2. Summary of significant accounting policies (cont d) 2.1 Basis of preparation (cont d) 2.1.1 Changes in accounting policy and disclosures (cont d) Amendments to KIFRS 1111 Joint Arrangements: Accounting for Acquisitions of Interests The amendments to KIFRS 1111 require that a joint operator accounting for the acquisition of an interest in a joint operation, in which the activity of the joint operation constitutes a business, must apply the relevant KIFRS 1103 principles for business combinations accounting. The amendments also clarify that a previously held interest in a joint operation is not remeasured on the acquisition of an additional interest in the same joint operation while joint control is retained. In addition, a scope exclusion has been added to KIFRS 1111 to specify that the amendments do not apply when the parties sharing joint control, including the reporting entity, are under common control of the same ultimate controlling party. The amendments apply to both the acquisition of the initial interest in a joint operation and the acquisition of any additional interests in the same joint operation and are prospectively effective for annual periods beginning on or after January 1, 2016, with early adoption permitted. These amendments are not expected to have an impact on the Group. Amendments to KIFRS 1016 and KIFRS 1038: Clarification of Acceptable Methods of Depreciation and Amortization The amendments clarify the principle in KIFRS 1016 and KIFRS 1038 that revenue reflects a pattern of economic benefits that are generated from operating a business (of which the asset is part) rather than the economic benefits that are consumed through use of the asset. As a result, a revenue-based method cannot be used to depreciate property, plant and equipment and may only be used in very limited circumstances to amortize intangible assets. The amendments are effective prospectively for annual periods beginning on or after January 1, 2016, with early adoption permitted. These amendments are not expected to have any impact to the Group given that the Group has not used a revenue-based method to depreciate its non-current assets. Amendments to KIFRS 1016 and KIFRS 1041 Agriculture: Bearer Plants The amendments change the accounting requirements for biological assets that meet the definition of bearer plants. Under the amendments, biological assets that meet the definition of bearer plants will no longer be within the scope of KIRS 1041. Instead, KIFRS 1016 will apply. After initial recognition, bearer plants will be measured under KIFRS 1016 at accumulated cost (before maturity) and using either the cost model or revaluation model (after maturity). The amendments also require that produce that grows on bearer plants will remain in the scope of KIFRS 1041 measured at fair value less costs to sell. For government grants related to bearer plants, KIFRS 1020 Accounting for Government Grants and Disclosure of Government Assistance will apply. The amendments are retrospectively effective for annual periods beginning on or after January 1, 2016, with early adoption permitted. These amendments are not expected to have any impact to the Group as the Group does not have any bearer plants. Amendments to KIFRS 1110 and KIFRS 1028: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture The amendments address the conflict between KIFRS 1110 and KIFRS 1028 in dealing with the loss of control of a subsidiary that is sold or contributed to an associate or joint venture. The amendments clarify that the gain or loss resulting from the sale or contribution of assets that constitute a business, as defined in KIFRS 1103, between an investor and its associate or joint venture, is recognized in full. Any gain or loss resulting from the sale or contribution of assets that do not constitute a business, however, is recognized only to the extent of unrelated investors interests in the associate or joint venture. These amendments must be applied prospectively and are effective for annual periods beginning on or after January 1, 2016, with early adoption permitted. These amendments are not expected to have any impact on the Group. 15

2. Summary of significant accounting policies (cont d) 2.1 Basis of preparation (cont d) 2.1.1 Changes in accounting policy and disclosures (cont d) Amendments to KIFRS 1001 Disclosure Initiative The amendments to KIFRS 1001 Presentation of Financial Statements clarify, rather than significantly change, existing KIFRS 1001 requirements. The amendments clarify: The materiality requirements in KIFRS 1001 That specific line items in the statement(s) of profit or loss and OCI and the statement of financial position may be disaggregated That entities have flexibility as to the order in which they present the notes to financial statements That the share of OCI of associates and joint ventures accounted for using the equity method must be presented in aggregate as a single line item, and classified between those items that will or will not be subsequently reclassified to profit or loss Furthermore, the amendments clarify the requirements that apply when additional subtotals are presented in the statement of financial position and the statement(s) of profit or loss and OCI. These amendments are effective for annual periods beginning on or after January 1, 2016, with early adoption permitted. These amendments are not expected to have any impact on the Group. Amendments to KIFRS 1110, KIFRS 1112 and KIFRS 1028 Investment Entities: Applying the Consolidation Exception The amendments address issues that have arisen in applying the investment entities exception under KIFRS 1110. The amendments to KIFRS 1110 clarify that the exemption from presenting consolidated financial statements applies to a parent entity that is a subsidiary of an investment entity, when the investment entity measures all of its subsidiaries at fair value. Furthermore, the amendments to KIFRS 1110 clarify that only a subsidiary of an investment entity that is not an investment entity itself and that provides support services to the investment entity is consolidated. All other subsidiaries of an investment entity are measured at fair value. The amendments to KIFRS 1028 allow the investor, when applying the equity method, to retain the fair value measurement applied by the investment entity associate or joint venture to its interests in subsidiaries. These amendments must be applied retrospectively and are effective for annual periods beginning on or after January 1, 2016, with early adoption permitted. These amendments are not expected to have any impact on the Group. Annual Improvements 2012-2014 Cycle These improvements are effective for annual periods beginning on or after January 1, 2016. They include: KIFRS 1105 Non-current Assets Held for Sale and Discontinued Operations KIFRS 1107 Financial Instruments: Disclosures KIFRS 1019 Employee Benefits KIFRS 1034 Interim Financial Reporting These amendments are not expected to have any impact on the Group. 16

2. Summary of significant accounting policies (cont d) 2.2 Consolidation The Group has prepared the consolidated financial statements in accordance with KIFRS 1110, Consolidated Financial Statements. (a) Subsidiaries Subsidiaries are all entities over which the Company has control. The Company controls the corresponding investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. The consolidation of a subsidiary begins from the date the Company obtains control of a subsidiary and ceases when the Company loses control of the subsidiary. The Group applies the acquisition method to account for business combinations. The consideration transferred is measured at the fair values of the assets transferred, and identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are initially measured at their fair values at the acquisition date. The Group recognizes any non-controlling interest in the acquiree on an acquisition-by-acquisition basis in the event of liquidation, either at fair value or at the non-controlling interest s proportionate share of the recognized amounts of acquiree s identifiable net assets. All other non-controlling interests are measured at their acquisition-date fair values, unless another measurement basis is required by other standards. Acquisition-related costs are expensed as incurred. Goodwill is recognized as the excess of the aggregate of the consideration transferred, the amount of any non-controlling interest in the acquiree, and the acquisition-date fair value of the acquirer s previously held equity interest in the acquiree over the identifiable net assets acquired. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognized in profit or loss. Balances of receivables and payables, income and expenses and unrealized gains on transactions between the Group and subsidiaries are eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. In transactions with non-controlling interests, which do not result in loss of control, the Group recognizes directly in equity attributable to owners of the parent any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received, and attribute it to the owners of the parent. (b) Associates Associates are all entities over which the Group has significant influence, and investments in associates are initially recognized at acquisition cost using the equity method. Unrealized gains on transactions between the Group and its associates are eliminated to the extent of the Group s interest in the associates. If there is any objective evidence that the investment in the associate is impaired, the Group recognizes the difference between the recoverable amount of the associate and its book value as impairment loss. (c) Joint Arrangements A joint arrangement, wherein two or more parties have joint control, is classified as either a joint operation or a joint venture. A joint operator has rights to the assets, and obligations for the liabilities, relating to the joint operation and recognizes the assets, liabilities, revenues and expenses relating to its interest in a joint operation. A joint venturer has rights to the net assets relating to the joint venture and accounts for that investment using the equity method. 17

2. Summary of significant accounting policies (cont d) 2.3 Segment Reporting Management performs the allocation of resources and assessment of performance by each operating segment. The operating segment of the Group is recognized based on the method of organizing and generating income. As at December 31, 2015, the Group s segment consists of manufacturing and sales of biopharmaceutical medicines and chemical medicines. The Group had one operating segment of manufacturing and sales of biopharmaceutical medicines, until the prior period, however, the chemical medicines segment is newly included in the current period as a result of adjustment of consolidation scope. Business objective of biopharmaceutical medicines segment is to develop, manufacture and sell various therapeutic proteins including oncology treatment drugs by bioengineering and mammalian cell-culture technology. Business objective of chemical medicines segment is to develop, manufacture and sell chemical medicines. The Group assesses the performance of each operating segment based on operating profit, and there is no difference with the amounts reported on the condensed consolidated statement of profit or loss, except for intergroup transactions. The following table summarizes the results of financial performance of the Group by operating segments for the years ended (Korean won in thousands): Biopharmaceutical medicines December 31, 2015 Chemical medicines Others Total Adjustment of intergroup transactions Amount after adjustment Revenue \ 528,784,433 \ 72,578,429 \ 8,246,607 \ 609,609,469 \ (6,196,700) \ 603,412,769 Depreciation 30,244,750 896,918 557,317 31,698,985-31,698,985 Amortization 48,721,670 1,738,918 14,510 50,475,098-50,475,098 Operating profit (loss) 253,902,200 5,849,088 (1,315,622) 258,435,666 518,653 258,954,319 Non-current assets (*1) 1,316,702,947 283,955,894 2,764,556 1,603,423,397 (8,044,319) 1,595,379,078 Biopharmaceutical medicines December 31, 2014 Chemical medicines Others Total Adjustment of intergroup transactions Amount after adjustment Revenue \ 404,621,868 \ 64,708,354 \ 9,939,196 \ 479,269,418 \ (8,223,907) \ 471,045,511 Depreciation 28,645,775 767,915 752,201 30,165,891-30,165,891 Amortization 44,467,006 1,631,361 14,553 46,112,920-46,112,920 Operating profit (loss) 197,468,155 7,373,574 (1,319,138) 203,522,591 (121,699) 203,400,892 Non-current assets (*1) 1,266,231,984 236,192,326 3,598,484 1,506,022,794 (6,235,938) 1,499,786,856 (*1) The amount is the sum of property, plant and equipment and intangible assets. 18

2. Summary of significant accounting policies (cont d) 2.4 Foreign currency translation (a) Functional and presentation currency Items included in the financial statements of each of the Group s entities are measured using the currency of the primary economic environment in which the each entity operates (the functional currency). The consolidated financial statements are presented in Korean won, which is the Company s functional and presentation currency. (b) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in profit or loss. Exchange differences arising on non-monetary financial assets and liabilities such as equity instruments at fair value through profit or loss and available-for-sale equity instruments are recognized in profit or loss and included in OCI, respectively, as part of the fair value gain or loss. (c) Translation into the presentation currency The results and financial position of all Group entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows: assets and liabilities for each statement of financial position presented are translated at the closing rate at the end of the reporting period; income and expenses for each statement of income are translated at average exchange rates; equity is translated at the historical exchange rate; and all resulting exchange differences are recognized in OCI. 2.5 Financial assets (a) Classification and measurement The Group classifies its financial assets in the following categories: financial assets at fair value through profit or loss, loans and receivables, available-for-sale financial assets, and held-to-maturity financial assets. Regular purchases and sales of financial assets are recognized on the trade date. At initial recognition, financial assets are measured at fair value plus, in the case of financial assets not carried at fair value through profit or loss, transaction costs. Transaction costs of financial assets carried at fair value through profit or loss are expensed in the statement of income. After the initial recognition, available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables, and held-to-maturity investments are subsequently carried at amortized cost using the effective interest rate method. Changes in fair value of financial assets at fair value through profit or loss are recognized in profit or loss and changes in fair value of available-for-sale financial assets are recognized in OCI. When the available-for-sale financial assets are sold or impaired, the fair value adjustments recorded in equity are reclassified into profit or loss. 19

2. Summary of significant accounting policies (cont d) 2.5 Financial assets (cont d) (b) Impairment The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a loss event) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or a group of financial assets that can be reliably estimated. Impairment of loans and receivables is presented as a deduction in an allowance account. Impairment of other financial assets is directly deducted from their carrying amount. The Group writes off financial assets when the assets are determined to be no longer recoverable. The objective evidence that a financial asset is impaired includes significant financial difficulty of the issuer or obligor; a delinquency in interest or principal payments over three months; or the disappearance of an active market for that financial asset because of financial difficulties. In addition, an objective evidence includes a significant or a consistent decrease of fair value of available-for-sale securities. (c) Derecognition If the Group transfers a financial asset and the transfer does not result in de-recognition because the Group has retained substantially of all risks and rewards of ownership of the transferred asset due to a recourse in the event the debtor defaults, the Group continues to recognize the transferred asset in its entirety and recognizes a financial liability for the consideration received. The related financial liability is classified as borrowings in the statement of financial position. (d) Offsetting of financial instruments Financial assets and liabilities are offset and the net amount reported in the consolidated statements of financial position where there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis to realize the assets and settle the liability simultaneously. The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the Group or the counterparty. 2.6 Derivative instruments Derivatives are initially recognized at fair value on the date when a derivative contract is entered into and are subsequently re-measured at their fair value. Changes in the fair value of the derivatives that are not qualified for hedge accounting are recognized in the statement of income within other income (expenses) or financial income (expenses) according to the nature of transactions. 2.7 Inventories Inventories are stated at the lower of cost and net realizable value. Cost is determined using the periodic average method. 20

2. Summary of significant accounting policies (cont d) 2.8 Property, plant and equipment All property, plant and equipment are stated at historical cost less depreciation and accumulated impairment loss. Historical cost includes expenditures directly attributable to the acquisition of the items. Land is not depreciated. Depreciation on other assets is calculated using the straight-line method to allocate the difference between their cost and their residual values over their estimated useful lives, as follows: Buildings Facilities Structures Machinery Vehicles Furniture Estimated Useful Lives 40 years 16 years 20 years 5-10 years 5 years 5 years The depreciation method, residual values and useful lives of property, plant and equipment are reviewed at the end of each reporting period and, if appropriate, accounted for as changes in accounting estimates. 2.9 Borrowing costs Borrowing costs incurred in the acquisition or construction of a qualifying asset are capitalized in the period when it is prepared for its intended use, and investment income earned on the temporary investment of borrowings made specifically for the purpose obtaining a qualifying asset is deducted from the borrowing costs eligible for capitalization during the period. Other borrowing costs are recognized as expense over the period of its occurrence. 2.10 Government grants Government grants are recognized at their fair values when there is reasonable assurance that the grant will be received and the Group will comply with the conditions attached to it. Government grants related to assets are presented by deducting the grants in arriving at the carrying amount of the assets, and grants related to income are deferred and presented by deducting the related expenses for the purpose of the government grants. 21

2. Summary of significant accounting policies (cont d) 2.11 Intangible assets Intangible assets are stated at cost at initial recognition and stated at net of accumulated amortization and accumulated impairment loss after initial recognition. Internally generated development costs are the aggregate costs recognized after meeting the asset recognition criteria, including technical feasibility and expected future economic benefits. Facility usage rights are regarded as intangible assets with indefinite useful life and not amortized because there is no foreseeable limit to the period over which the assets are expected to be utilized. Intangible assets with definite useful life that are amortized using the straight-line method over their estimated useful lives are as follows: Software Intellectual property Development expenses Industrial property rights Patents Estimated Useful Lives 5 years 16 years 5~15 years 5 years 5 years Research costs are recognized as an expense when it is incurred. Development costs which are individually identifiable and directly related to a new technology or to new products which carry probable future benefits are capitalized as intangible assets when the following criteria are met: it is technically feasible to complete the intangible assets so that it will be available for use; management intends to complete the intangible assets and use or sell it; there is an ability to use or sell the intangible assets; it can be demonstrated how the intangible assets will generate probable future economic benefits; adequate technical, financial and other resources to complete the development and to use or sell the intangible assets are available; and the expenditure attributable to the intangible assets during its development can be reliably measured. Other development expenditures that do not meet these criteria are recognized as an expense as incurred. Development costs previously recognized as an expense are not recognized as an asset in a subsequent period. 2.12 Impairment of non-financial assets Intangible assets with indefinite useful lives are not subject to amortization and are tested annually for impairment. An impairment loss is recognized for the amount by which the asset s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset s fair value less costs to sell and value in use. Non-financial assets, other than goodwill, that suffered impairment are reviewed for possible reversal of the impairment at each reporting date. 22

2. Summary of significant accounting policies (cont d) 2.13 Financial liabilities (a) Classification and measurement Financial liabilities at fair value through profit or loss are financial instruments held for trading. Financial liabilities are classified in this category if incurred principally for the purpose of repurchasing them in the near term. Derivatives that are not designated as hedges or bifurcated from financial instruments containing embedded derivatives are also categorized as held-for-trading. The Group classifies non-derivative financial liabilities, except for financial liabilities at fair value through profit or loss, financial guarantee contracts and financial liabilities that arise when a transfer of financial assets does not qualify for derecognition, as financial liabilities carried at amortized cost and presented as trade payables, borrowings, and other financial liabilities in the statement of financial position. (b) Derecognition Financial liabilities are removed from the statement of financial position when it is extinguished, for example, when the obligation specified in the contract is discharged, cancelled or expired or when the terms of an existing financial liability are substantially modified. 2.14 Financial guarantee contract Financial guarantees are initially measured at fair value on the date the guarantee was given. Subsequent to initial recognition, the Group s liabilities under such guarantees are measured at the higher of the amounts below and recognized as other financial liabilities. 1) amount calculated in accordance with KIFRS 1037, Provisions, Contingent Liabilities and Contingent Assets; or 2) the initial amount, less accumulated amortization recognized in accordance with KIFRS 1018, Revenue. 2.15 Compound financial instruments Compound financial instruments are convertible bonds that can be converted into equity instruments at the option of the holder. The liability component of a compound financial instrument is recognized initially at the fair value of a similar liability that does not have an equity conversion option. The equity component is recognized initially on the difference between the fair value of the compound financial instrument as a whole and the fair value of the liability component. Any directly attributable transaction costs are allocated to the liability and equity components in proportion to their initial carrying amounts. In accordance with the Interpretation Statements No.00094 issued by the Financial Supervisory Service in Korea, in relation to exchangeable bonds and convertible bonds. This accounting treatment is applicable within KIFRS in accordance with Item 1 under Paragraph 1 of Article 13 in the Act on External Audit for Stock Companies. 2.16 Provisions Provisions are measured at the present value of the expenditures expected to be required to settle the obligation and the increase in the provision due to passage of time is recognized as interest expense. 23

2. Summary of significant accounting policies (cont d) 2.17 Current and deferred income tax The tax expense for the period consists of current and deferred tax. Tax is recognized on the profit for the period in the statement of income, except to the extent that it relates to items recognized in other comprehensive income or directly in equity. The tax expense is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period. Management periodically evaluates tax policies that are applied in tax returns in which applicable tax regulation is subject to interpretation. The Group recognizes current income tax on the basis of the amount expected to be paid to the tax authorities. Deferred tax is recognized for temporary differences arising between the tax bases of assets and liabilities and their carrying amounts as expected tax consequences at the recovery or settlement of the carrying amounts of the assets and liabilities. However, deferred tax assets and liabilities are not recognized if they arise from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the deductible temporary differences can be utilized. Deferred tax liability is recognized for taxable temporary differences associated with investments in subsidiaries, associates, and interests in joint ventures, except to the extent that the Group is able to control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. In addition, deferred tax asset is recognized for deductible temporary differences arising from such investments to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilized. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis. 2.18 Employee benefits (a) Post-employment benefits The Group has a defined contribution plan. A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. The contributions are recognized as employee benefit expenses when an employee has rendered service. (b) Share-based payments Equity-settled share-based payments granted to employees are estimated at fair value of equity instruments on the grant date and recognized as employee benefit expenses over the vesting period. The number of equity instruments expected to vest is remeasured with consideration to non-market vesting conditions at the end of the reporting period, with any changes from the original measurement recognized in the profit for the year and equity. When the options are exercised, the Group issues new shares. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium. 24